challenges and opportunities of asset management

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© 2016 The Alta Group, LLC

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Proprietary and Confidential:

The Alta Group prepared this information solely for our client: 3rd party use is permitted only with explicit advance permission of The Alta Group

CHALLENGES AND OPPORTUNITIES OF

ASSET MANAGEMENT: MEASURING AND

MANAGING ASSET RISK

2 AUGUST 2019

By Carl C. Chrappa, A.S.A., M.R.I.C.S., I.F.A.

Senior Managing Director – Asset Management Practice LeaderEmail: [email protected]

Phone: 01-727-796-7733

III Leasing Encounter

mailto:[email protected]

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V. Equipment Market Conditions and Outlooks

OVERVIEW

IV. Equipment Analysis – Industry Perceptions of Equipment Markets and Future Business Opportunities

III. Expected Results of Proper Asset Management

I. Role of Asset Management in Leasing

II. Asset Risk in Leasing

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A. Maximizing profits through lifecycle

management & minimizing risk

I. Role of Asset Management in Leasing

Asset

Management

Life Cycle

End of

Term

Mid-

Term

Bid

Preparation

Lease

Commence-

ment

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3. Mid-terma) Review lessee’s financial condition

b) Possible physical inspection

c) Lessee intentions – “key assets”?

4. End of term preparationa) Review operative documents

b) Prepare for EOT purchase option negotiationsi. Know your lessee

ii. Know your asset

iii. Know its value

c) Execute purchase option or prepare for return

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5. Return – remarketing (continued)

c) Commence remarketing plan (continued)

ii. Remarketer to sell

1) Select a remarketer based on knowledge of asset and experience

2) Negotiate fee with remarketing agent, on an exclusive basis; if not sold exclusively, realized price will be lower

3) Remarketer to bring offer to asset management to accept or reject

4) If offer accepted, then sale is closed by asset management or with asset management’s approval

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APPRAISAL APPROACHES TO VALUE

– VALUE MEASUREMENT –

Three Approaches to Value

I. Cost ApproachDepreciated replacement cost new

II. Comparable Sales (Market)Market value for same or comparable item

III. Income ApproachPresent value of future earnings

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Levels of RV Risk

Type of Value (Value Tier)--EXAMPLE--

Sales Price % of FMV

Fair Market Value-in-Place (FMVIP)(Retail – Installed)

$225,000 113%

Fair Market Value-in-Exchange (FMV)(Retail – Deinstalled)

$200,000 100%

Orderly Liquidation Value (OLV)(Wholesale)

$175,000 88%

Forced Liquidation Value (FLV)(UTH)

$155,000 78%

Salvage / Part-Out Value (Sal. V) $12,000 6%

Scrap Value (SV) $2,000 1%

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I. Cost Approach to Value ExampleDepreciated Replacement Cost

Equipment– 5 yrs old; est. Useful Life: 10 yrs

Description % of RCN

I. Replacement Cost 100%

II.Physical Depreciation: Age/Life;

5 yrs / 10 yrs; -50%50%

III.Functional Obsolescence:

2% per year; -10%45%

IV.Economic Obsolescence:

-20%; and final value36%

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EXAMPLE: Determine the value of a (5) year old Brand X – CNC

turning center, Model Y w/ 20-in. swing, s/n 123456, w/ CNC controls

II. Sales Comparison Approach to Value (Market Approach) Example

FMV Sales Database ($ x 1,000) for Brand X – Model Y

Cost New 4-yrs 5-yrs 6-yrs

Values (Price)

$250 $101.6 $85 $72.5

110 90 75

100 80 70

95 85

% of Cost New

100 38 34 29

Collateral curve as % of New Cost appears to be reasonable (based

on the shape of the depreciation curve and experience).

0%

20%

40%

60%

80%

100%

0 2 4 6

Sale

s p

rice

, % N

ew C

ost

Age, yrs

Trade Data

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Historical Colombian Exchange Rate, COP / US$

0

500

1.000

1.500

2.000

2.500

3.000

3.500

25/01/2000 21/10/2002 17/07/2005 12/04/2008 7/01/2011 3/10/2013 29/06/2016 26/03/2019

2012 (New)

USD 200,000 x 1,750 P/USD = 350,000,000 Peso

RV in 2019

USD 50,000 (25%) X 3,205 P/USD = 160,250,000 Peso (45.8%)

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Market Data Charting

0%

20%

40%

60%

80%

0 5 10 15 20 25

Construct’n Eqpt, RV as %New Cost vs Age

excavator

grader

scraper

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A. Defensive role: Avoid losses because

full value cannot be obtained from

collateral.

II. Asset Management’s Role in Asset Risk in Leasing

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B. Offensive role: Generating upside

gains on residuals.

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C. Asset management risk

considerations:

1. Full payout; debt versus net worth, leverage, interest rate coverage, etc. Asset can also play a secondary role in mitigating the risk with its liquidation value in event of default

- - - - - - versus - - - - - -

2. Purchase Option Leases; with residual values

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C. Asset management risk considerations:

(Cont.)

3. Residual value analysis (Cont.)

f) Level of RV risk assumed:

i. FMV-in-place (installed)

ii. FMV (retail)

iii. OLV (wholesale)

iv. Net OLV (OLV less cost of sale)

v. 80% of OLV

vi. Auction value

https://images.wisegeek.com/mercury-thermometer-closeup.jpg

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A. Reduction in losses thanks to planning and

analytics – leads to higher profits

B. Improved risk analysis – asset and value

analytics (study the asset; know its value)

C. Improved risk management framework –

better overall control

D. Early engagement in strategic business

decisions following a predefined framework

III. Expected Results of Proper Asset Management

https://www.ajce.in/au/images/results-improve.png

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Orderly Liquidation Value

Trailers 36 mos 48 mos 60 mos 72 mos 84 mos

Flatbed 30% 28% 25% 23% 20%

Lowboy 30% 28% 25% 20% 15%

Dry van 48-ft & over 30% 28% 25% 23% 20%

Soft-side 48-ft & over 30% 28% 25% 20% 15%

Dry van (36-ft to 45-ft) 25% 23% 20% 15% 10%

Soft-side (36-ft to 45-ft) 25% 23% 20% 15% 10%

Dry van (24-ft to 35-ft) 30% 28% 25% 23% 20%

Reefer 48-ft & over 35% 33% 30% 25% 20%

Reefer (36-ft to 45-ft) 35% 33% 30% 25% 20%

Reefer (24-ft to 35-ft) 35% 33% 30% 25% 20%

Chassis 30% 28% 25% 23% 20%

Tanker 30% 28% 25% 23% 20%

Dolly (tandem w/5th wheel) 30% 28% 25% 23% 20%

Estimated Useful Life:

Orderly Liquidation Value

Vehicles - under 13M unladen 36 mos 48 mos 60 mos 72 mos 84 mos

Diesel Auto (mid - full) 0% 0% 0% 0% 0%

Gas Auto (mid - full) 30% 25% 20% 10% 0%

Gas Auto (compact) 20% 18% 15% 8% 0%

Gas Auto (subcompact) 20% 18% 15% 8% 0%

Shuttle (forward) 25% 20% 15% 11% 7%

Shuttle (perimeter) 20% 15% 10% 8% 5%

Estimated Useful Life:

Alta Residual Value Matrix

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Alta Agricultural Tractor DatabaseType Drive Make Model Mfr Yr Family Hp MSRP RCN S/N Use, Hrs Cond. Price Sale Type Sale Date Sale Yr Sale Age Location Source

175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F105829 1,050 -- $175,000 Asking Oct-10 2010 3 IN tractorhouse.com

175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106117 1,930 F $159,000 Asking Oct-10 2010 3 MN fastline.com

175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106161 539 E $192,000 Asking Oct-10 2010 3 IA fastline.com

175 HP Or Greater 4WD Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106224 1,050 -- $175,000 Asking Oct-10 2010 3 IN tractorhouse.com

175 HP Or Greater -- Case IH STX380 2007 CIH Steiger 385 380 $213,728 $250,773 Z7F106262 370 -- $174,000 Asking Oct-10 2010 3 TX equipmentlocator.com

175 HP Or Greater 4WD Case IH STX380 2008 CIH Steiger 385 380 $215,816 $250,773 Z7F105888 1,277 $181,900 Asking Dec-10 2010 2 IA tractorhouse.com

175 HP Or Greater 4WD Case IH STX385 2009 CIH Steiger 385 385 $237,487 $237,487 -- 331 G $155,000 Auction Dec-09 2009 0 MN machinerypete

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 -- 3,100 -- $99,900 Asking Oct-10 2010 3 ND fastline.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330P001396 2,304 -- $85,000 Asking Oct-10 2010 3 KS tractorhouse.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H001448 105 -- $83,500 Asking Oct-10 2010 3 AL fastline.com

100 HP to 174 HP MFD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001461 1,257 -- $82,500 Asking Oct-10 2010 3 PA equipmentlocator.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001461 1,257 $82,500 Asking Dec-10 2010 3 PA tractorhouse.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K001895 -- E $107,500 Asking Oct-10 2010 3 IA fastline.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H002010 967 -- $75,000 Asking Oct-10 2010 3 GA fastline.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 150 $98,601 $86,580 RW7330K002058 1,250 $78,900 Asking Dec-10 2010 3 MN tractorhouse.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330H004101 498 -- $92,000 Asking Oct-10 2010 3 IL tractorhouse.com

100 HP to 174 HP -- John Deere 7330 2007 JD 7330 125 $93,101 $81,080 RW7330K004244 2,331 -- $89,900 Asking Oct-10 2010 3 MN fastline.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 125 $98,601 $86,580 RW7330K004303 754 -- $91,900 Asking Oct-10 2010 3 OH fastline.com

100 HP to 174 HP MFWD John Deere 7330 2007 JD 7330 152 $98,601 $86,580 RW7730D006095 1,249 $100,500 Asking Dec-10 2010 3 KS tractorhouse.com

Tractors - 100 HP to 174 HP 2WD John Deere 7330 2008 JD 7330 125 $72,686 $81,080 RW7330H005753 969 -- $46,000 Auction Oct-10 2010 2 TX tractorhouse.com

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DATA SOURCES

Auction Blue Books Asking Prices

Agricul-

ture

tractorhouse Tractor Blue Book tractorhouse

Last Bid Hotline Farm Equipment Guide mascus

Machinery Pete Farm Equipment IronGuides fastline

Auto-

mobiles

Leake Auction Company Auto Red Book carsforsale

Auto Auction Mall TrueCar autotrader

cars.com

Machine

Tools

dataref machinetools.com

machinio

kitmondo

Truck/

Trailer

truckpaper Truck Blue Book truckpaper

Richie Bros Trailer Blue Book trailershopper

rockanddirt usedequipmentguide commercialtrucktrader

Chemical

Processing

bid-on-equipment bid-on-equipment

dataref HGR industrial surplus

kitmondo

Construc-

tion

machinerytrader Green Guide machinerytrader

Richie Bros usedequipmentguide catused

ironplanet rockanddirt

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E. U.S. Equipment Outlook, such as our What’s Hot

/ What’s Not in Equipment Leasing survey for

2019. Shows the 5 top equipment types are, in

order: Construction – No. 1 for the 6th year in a

row; followed by Truck/Trailer; Machine Tools;

Medical; and HiTech/Computer equipment. The

bottom 5 (of 15 total) were, in order, Telecommu-

nications; Automobiles; FF&E (furniture);

Oil/Gas/Energy; and in last place, as usual,

Printing.

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What’s Hot /

What’s Not in

Equipment Leasing

for 2019

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I.UNWEIGHTED FUTURE OPPORTUNITIES RANKING

BEST (+) AND WORST (-) BY EQUIPMENT TYPE

-30-20-10

010203040506070

Co

ns

truc

tion

Tru

ck

/Tra

iler

Ma

ch

ine

To

ols

Hi-T

ech

/Co

mp

ute

r

Me

dic

al

Ma

rine/In

terc

oa

sta

l

Pla

stic

Ra

il

Airc

raft

Co

nta

ine

rs/C

ha

ss

is

Te

leco

m

Oil/G

as

/En

erg

y

Prin

ting

FF

&E

Au

tom

ob

iles

+63

+48 +45

+33 +33+25 +24 +24

+18+14

+2 +0

-15-23 -24

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II. FUTURE LEASING BUSINESS VOLUME

BY EQUIPMENT TYPE (Weighted)

-200

-150

-100

-50

0

50

100

150

200

Co

ns

truc

tion

Tru

ck

/Tra

iler

Mach

ine T

oo

ls

Me

dic

al

Hi-T

ech

/Co

mp

ute

r

Ra

il

Co

nta

ine

rs/C

ha

ss

is

Pla

stic

Airc

raft

Au

tom

ob

iles

FF

&E

Te

leco

m

Ma

rine/In

terc

oa

sta

l

Oil/G

as

/En

erg

y

Prin

ting

178

11289

6843

9 1

-14 -25-54 -55 -58 -67

-110

-158

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III. CHANGES IN RESIDUAL POSITIONS

BY EQUIPMENT TYPE (+ increase / - decrease)

-40

-30

-20

-10

0

10

20

30

Co

ns

truc

tion

Ma

ch

ine

To

ols

Ra

il

Co

nta

ine

rs/C

ha

ss

is

Hi-T

ech

/Co

mp

ute

r

Pla

stic

Tru

ck

/Tra

iler

Me

dic

al

Ma

rine/In

terc

oa

sta

l

FF

&E

Airc

raft

Te

leco

m

Oil/G

as

/En

erg

y

Prin

ting

Au

tom

ob

iles

+26

+18

+6+3

-2 -3 -5 -7 -9-14 -14

-22 -23

-31 -31

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IV.FINAL OVERALL SCORE AND RANKING

LOWEST SCORE BEING THE BEST

0

5

10

15

20

25

30

Co

ns

truc

tion

Tru

ck

/Tra

iler

Ma

ch

ine

To

ols

Me

dic

al

Hi-T

ech

/Co

mp

ute

r

Ra

il

Pla

stic

Co

nta

ine

rs/C

ha

ss

is

Airc

raft

Ma

rine/In

terc

oa

sta

l

Te

leco

m

Au

tom

ob

iles

FF

&E

Oil/G

as

/En

erg

y

Prin

ting

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68 9

1315

1718 19

2325 25

2628

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V.Equipment Survey Results: 2019 versus 2018

OVERALL RANKING SCORES

Equipment Type2019

Score

2018

ScoreDifference

CONSTRUCTION 2 2 +0

TRUCK/TRAILER 4 5 +1

MACHINE TOOLS 6 5 -1

MEDICAL 8 11 +3

HI TECH/COMPUTER 9 11 +2

RAIL 13 15 +2

PLASTICS 15 15 0

CONTAINERS/CHASSIS 17 11 -6

AIRCRAFT 18 17 -1

MARINE/INTERCOASTAL 19 27 +8

TELECOM 23 27 +4

AUTOMOBILES 25 24 -1

FF&E 25 20 -5

OIL/GAS/ENERGY 26 19 -7

PRINTING 28 30 +2

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V. Equipment Market Conditions and Outlooks: U.S. Leasing Market Size

►A. Total amount equipment and software purchased (x 1.0 Billion)

Year Total Total Financed Est. Amt Leased

2019 $1,866 est. $1,067 est. $507 forecast

2018 $1,817 prelim. $1,052 prelim. $500 prelim.

2017 $1,697 $1,012 $480

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B. Leasing penetration rate = 48% of amount financed

C. Top penetration rates (2017) [Lessor survey]

1. Copiers 78.9% Highest penetration, small ticket /

vendor oriented

2. Construction 32.7% High captive leasing and small

ticket sector

3. Rail 32.3% High direct leasing, large ticket

sector

4. Marine 31.6% High direct leasing, large ticket

sector

5. Agriculture 26.6% High captive leasing, small ticket

sector

6. Aircraft 18.9% High large ticket sector

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Equipment

Overviews &

Outlooks

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US TRAILER SALES(IN THOUSANDS)

195

227

226

280

330E320F

300F

0

50

100

150

200

250

300

350

2014

2015

2016

2017

2018E

2019F

2020F

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NORTH AMERICAN LIGHT VEHICLE SALES(IN MILLIONS)

17,40

17,20

16,84

16,67

16,91

16,99

16,56

16,51

13,24

10,43

11,59

12,78

14,49 15,58

16,5017.68

18.06*

17.23

17,33

16.6F

10

11

12

13

14

15

16

17

18

19

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019F

* New record

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USED MACHINE TOOL SALES

5 yr old Haas VMC

Auction PriceChange

from ‘09

2009 $28,000 Great Recession

2010 $47,000 +68%

2011 $50,000 +79%

2012 $41,000 +46%

2013 $52,000 +86%

2014 $54,000 +93%

2019 $56,500 +102%

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Machining Centers Horizontal, 400 - 800-mm pallet $790

Horizontal, >800mm pallet 709

Horizontal, <400mm pallet 495

Vertical, >20-in. Y 604

Vertical, <20-in. Y 551

Turning Centers Horizontal, >10-in chuck 465

Horizontal, <10-in chuck 566

EDM Ram Type 36

Wire Type 79

Laser Cutting 58

Transfer & Special Machinery 115

MACHINE TOOLSSpending by Equipment Type, $Mil

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Carpe diem!

https://static01.nyt.com/images/2014/06/29/sports/colombia/colombia-master1050.jpg

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Presented by:

Carl C. Chrappa, A.S.A., M.R.I.C.S., I.F.A.

Senior Managing Director – Asset Management Practice Leader

E-mail: [email protected] websites: www. thealtagroup.com

THANK YOU

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challenges and opportunities of asset management

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